Rationale & Comparative Results

Over the years, many people have asked me for investment advice. I think this is because people have the perceptions that I spend a lot of time thinking about investments and that my investing results have been good. Both perceptions are true.

My investment philosophy is somewhat unconventional. I agree with the conventional thinking about the importance of keeping costs low, diversification and minimizing taxes. I part ways with the conventional wisdom regarding a buy-and-hold portfolio dominated by U.S. stocks and bonds. The conventional wisdom worked well in the 80’s and 90’s, but has not fared well since. I believe it is destined to underperform in the years ahead.

In contrast to the conventional wisdom, my portfolio encompasses a broader array of asset classes and adjusts the allocation to these asset classes based on expected returns and risks. Since these things change over time, my portfolio adjusts as well. This makes sense to me and it has worked. I call this approach “Fundamental Asset Allocation.”

For these reasons, I am writing the Plumb Report. The opinions expressed herein are strictly my own. My past performance has been good, but it could also be meaningless. It could be just luck. There’s no way we’ll ever be able to statistically prove that I have superior investing acumen. I won’t live that long. It winds up being a “faith-based” investment decision on your part. It is up to you to carefully evaluate the clarity of my arguments and the rationality of my opinions to assess their merit. You need to decide whether or not this performance has been luck. It’s your money and your future. Invest at your own risk.

I’ve mentioned John Mauldin many times in the past and it’s time to do it again. John publishes a free weekly letter that I never miss. It requires registration, but I never receive junk mail as a result of having registered. His latest letter, Preparing for a Credit Crisis, is reason enough to sign up. In this latest missive, John gives us an up-to-the minute overview of the problems and costs facing Europe, the increasing likelihood of a U.S. (global) recession, the outlook for another 2008-style credit crisis and what the average investor might want to think about doing in the face of all of this. Read more…

Debts, Deficits and the Demise of the American Economy by Peter Tanous and Jeff Cox is about as close to the book I would write right now as I can imagine. It explains today’s economic mess and the unfolding financial crisis in straightforward language that doesn’t require a degree in economics.

A number of subscribers forwarded this video to me and it’s making the rounds in financial circles. If you’re still unclear about the phenomenon I refer to as “Queasing,” this should clear up any questions. Warning: After watching this video, you may not be able to hear the name Ben Bernanke without wanting to call him “The Bernank.” It’s like one of those songs that gets stuck in your head. If you like the absurd, I think you’ll like “Quantitative Easing Explained.”

“...an investor who proposes to ignore near-term market fluctuations needs great resources for safety and must not operate on so large a scale, if at all, with borrowed money. Finally, it is the long-term investor, he who promotes the public interest, who will in practice come in for the most criticism, wherever investment funds are managed by committee or boards or banks. For it is the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness, and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

The opinions as to portfolio allocation and specific investment vehicles contained herein are solely the opinions of the author and are not intended to be specific recommendations which would be suitable for every investor. The suitability of any specific investment or recommendation is dependent upon many subjective factors and characteristics of the individual investor including, but not limited to, particular investment objectives, risk tolerance, investment horizon or timeline, net worth, overall portfolio allocation and income needs. Specific investments may be suitable for some investors and yet unsuitable for others due to different needs and objectives. All readers should carefully consider their individual objectives and needs and should consult with their investment and financial advisor as to the suitability of any particular investment. The author specifically disclaims any liability or responsibility for any losses, which may result from any investment or allocation referenced herein.